Home Inspections and Residential Sale Agreement Negotiations - What to expect during the Inspection Contingency Period

Home Inspections and Residential Sale Agreement Negotiations - What to expect during the Inspection Contingency Period In this blog I’ll provide a basic overview of what happens during the home inspection contingency period and some of my thoughts about negotiating the terms of repair addendums.   Buyer Beware When it comes to real estate, Oregon is a buyer beware state. Due diligence  is required of the buyer. Buyers agents can and do assist in the due diligence process, but ultimately the responsibility falls to the buyer. A typical buyer isn’t an expert on real estate and home repairs. Consequently, most buyers here will hire home inspectors to learn about the home they are considering purchasing. The buyer’s agent will be valuable in determining which issues are worth taking issue with and pursuing negotiations appropriately with the seller’s agent.  Pre Offer Negotiations Mindset  Keep in mind that the initial offer is the first opportunity for the buyer to attempt to negotiate with consideration to the seller’s asking price, motivations, seller's disclosures and any readily apparent issues they might have noticed about the property during a showing or open house. For instance, if there’s visible evidence of lifted or missing shingles on the roof, or a huge puddle of water on the kitchen floor from a leak in the ceiling, or cracked sidewalks, the buyer may not want to offer full price. Credits towards repairs or price reductions can be requested in the initial offer. Of course, the buyer may not get their offer accepted, but it's quite difficult to negotiate on those obvious  issues after making an offer that doesn’t address them upfront.  Issues that come up in discovery, such as mold in the attic, or an old underground leaking oil tank, or dry rot in the posts of the foundation, are usually worthy of an attempt at negotiation.  Sellers Disclosures When a buyer makes an offer on a home they will typically have received the Seller’s Disclosures document, read it,  initialed it and included it with their submitted offer. The seller’s disclosures provide information about material defects known to the seller.  One exception to this scenario is when a property is held in trust and the sellers have insufficient knowledge of the property because they haven’t inhabited it, and are therefore not required to provide sellers disclosures.  Home Inspection Contingency Period, General Home Inspection, Specialized Inspections, Contractor Inspections & Bids If the buyer desires a home inspection to be performed, part of the sale agreement will outline the scope of the inspections and determine an Inspection Contingency Period. If inspections are agreed upon between the buyer and seller, the sale will be contingent upon the completion of the inspections. The inspections are performed within an agreed upon time period, typically ten days from offer acceptance, but the terms of the inspection itself and that timeframe can be adjusted. All negotiations based on inspections must be completed and changes to the contract agreed to before the end of the inspection contingency period for the transaction to continue.  Let’s get into what kinds of inspections typically take place.  1. General Home Inspection - this is exactly what it sounds like. A certified home inspector is employed to examine the home from top to bottom, in a general manner. They will provide a report that outlines the general condition of the home. In this report, they may suggest that additional specialized contractors or inspectors be brought in to further investigate potential issues that the home inspector isn’t qualified to make  assertions about. Examples might be along the lines of - “roof shows wear and tear and appears to be at the end of its life. Black spots found in the attic that appear to be mold growth. Recommend examination by a licensed roofing contractor and mold remediation specialist”  or “Portland maps shows the existence of an underground storage tank with  no record of decommissioning, recommend examination by a qualified environmental inspector to locate the tank and determine its current status..” The cost of a home inspection will depend on the individual inspector's pricing model and is frequently determined by the size and location of the home, how many buildings are on the property, etc. It’s common for the buyer's agent to recommend and book the inspector's services. However, a home buyer is perfectly free to shop home inspectors themselves and arrange the details of the appointment. Home inspectors will usually ask if the buyer is available to attend the inspection and the subsequent briefing on their findings. They will usually provide both printed and digital versions of the inspection for the buyers and their agent to review. A general home inspection can usually be set up within 48 hours of an accepted offer, but that will depend on how busy the market is. 2. Specialized Inspections - these are inspections that may fall out of the scope of the general home inspections. Examples might include a sewer scope, radon testing, underground storage tank location; including cesspool, septic or oil tank location, soil contamination tests, infrared camera inspections, drone footage, etc. Some of these inspections fall under the category of “Invasive Inspections” and must be agreed to by the seller explicitly. An example of an invasive inspection might be having a toilet removed to provide access for a sewer scope because a sewer cleanout can’t be located. Again, the costs to the buyer for these services will vary and either the buyer's agent or the buyer can make the arrangements for the inspections. The buyer will own the inspection reports provided by these specialists as well. Note that in Oregon, most sellers are obliged to have out of service oil tanks decommissioned and provide proof of the decommissioning to the buyers. For more info on oil tanks for buyers and sellers, from the State Of Oregon, visit this link Oregon DEQ 3. Contractor Inspections and Estimates: Specialized contractors may be brought in to assess the scope of and provide cost estimates of repairs when the general home inspector finds potential issues. Plumbers, Roofers, Mold Remediation Specialists, Structural Engineers, Electricians, Flooring or HVAC Contractors, etc. might be involved. Many contractors offer free estimates, but not all of them. Some will require a fee if they are aware that the estimate is desired as part of a real estate transaction. The buyer or the buyer's agent can make arrangements with the contractors. If there are fees involved, the buyer should expect to pay them.  Post Inspections - Negotiating A Sale Agreement Based On The Findings Of Home Inspections and Contractors Estimates If the inspection report was particularly intense, the buyer may request that the inspection contingency period be extended to allow more time for additional inspections or contractor bids.  Once the  inspections are physically completed, and before the inspection contingency period ends, the buyer has the option to attempt to renegotiate the terms of the sale agreement based on what they discovered during inspections they’ve had performed. The buyer will submit a repair addendum or addendums to the contract, to the seller, requesting their desired changes to the agreement.  For instance, let's say a roof is found to be in need of repair because there are leaks into the attic. A solution could be that the sellers agree to have the repairs completed to the buyers satisfaction before closing. Sounds good, but this option could have ramifications for the buyer and seller. What if the buyer and seller disagree on which company to hire to have the repairs taken care of? What if a roofer can’t be scheduled before the closing date? Adjustments to the closing date or a price reduction may be in order. Or, perhaps the seller would provide closing credits, allowing the buyer to divert those budgeted liquid funds to the roof repairs after closing.  If the buyer and seller can't agree as to how these issues will be addressed by the end of the inspection contingency period, they may elect to terminate the contract with no penalties, having their earnest money deposit returned in full.  Once the inspection contingency period is over, if the buyer decides to go forward, and all of the inspections and negotiations have taken place, the transaction will continue towards closing.  If you’re thinking of buying or selling a home, I hope this information is helpful in your process. As always, my door is always open to talk about real estate.  Please subscribe to this blog & have a great week!  Sam Densmore/Realtor/Inhabit Real Estate /September 6, 2024

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Listing Your Home For Sale In 2024

Listing your home for sale in 2024 Listing your home in 2024 is mostly the same, but a little different than it was in the past. In this blog I’ll strive to outline the basics of selling your home with a realtor and set expectations for what might transpire once a listing agreement is signed.  Prepare:  First of all, prepare to interview an agent by gathering any relevant documentation:  Mortgage Payoff Statement Interest rate of the mortgage Closing documents A copy of the deed Homeowners insurance policy HOA documents, CC&Rs, etc. Home improvement, maintenance and repair records Manuals and warranties The First Meeting: Interview agents at the property.  Interview realtors to find a good fit. They will walk the property, take photos and generally observe the condition of the home. Your realtor will collaborate with you to create a good strategy to sell. So, it’s important that you choose wisely. The realtor will market the property, advise you every step of the way, and communicate and negotiate with buyers and agents directly so you don’t have to. Real estate transactions can become fraught with emotions, so having a level headed, skilled listing agent is very valuable.   Pricing: Steps to the Net Sheet  The Net Sheet is a document prepared by the listing agent outlining the expenses and potential net to be expected at closing.  Examining the Property After walking the property, taking into consideration relevant market data and the current condition of the home the agent will create a comparative market analysis (CMA) to provide a relative picture of the value of the property given the current market conditions and provide a broker’s price opinion (BPO) suggesting a list price. Some agents will suggest taking a proactive approach by hiring a home inspector for a pre-listing inspection. Note that, If material defects are found in the pre-listing inspection, the seller will be required by law to disclose that information to buyers submitting offers. If the home presents pricing challenges due to the uniqueness of the property, or other issues such as a lack of comparable sales, a pre-listing appraisal might also be in order. Also note, sellers aren’t obligated to share pre-listing appraisals or inspection reports with buyers.   A preliminary title check will help the agent and seller to understand what’s owed on the property, and bring up any issues with the title such as liens, or other problems that could impact or delay the sale of the home. In Oregon, unless the home is vested in a trust where the seller does not have sufficient knowledge of the property to provide disclosures, Seller’s disclosures are required when selling a home. This document is the seller’s statement regarding the condition of the home. Be honest when disclosing any known defects, as there could be legal consequences down the road for deceiving a buyer by hiding this information.  Listing Agreement: After you’ve made a decision regarding a realtor, expect to sign a listing agreement. The listing agreement is a contract with the realtor to market the home. It will outline what the realtor’s duties are and what they will get paid. At this point, you will have your first negotiation in the sale process: coming to an agreement on realtor fees and structure.  Listing Fees:  There is no standard listing fee paid to agents. Listing agents and buyers agents are paid by agreed upon commissions or flat fees when the sale is complete. These fees have always been negotiable, and remain so. In the past, it was generally expected that the seller would budget to offer to pay the buyer’s broker from the proceeds of the sale. (i.e. listing fee = 6% of sale price, to be split 50/50 with buyers broker at closing). The buyer’s agent commission amount was included in the listing and published on the MLS.  At this point, the commission structure has been decoupled, and advertising it on the MLS is no longer allowed. Buyers are now required to agree to be responsible for a set fee or commission rate with their broker at closing. When submitting an offer, they may request that the seller contribute to that expense with seller concessions or price reductions. Discuss the ins and outs of offering a buyers agent commission with your listing agent to set expectations surrounding this element of the sale.  Marketing Costs: Upfront marketing costs might be covered by the listing agent, the seller or both. Discuss this with your agent. Budget for basic marketing such as photos, videos, staging, fliers, home books, cleaning, open houses or events, and updates to the home to improve marketability. Common updates include painting, landscaping, new appliances, carpet, etc. Obvious repairs might also be in order to improve curb appeal - think roofing, flooring, hazardous sidewalks, systems upgrades like a furnace or HVAC/Heat pump, oil tank, cesspool or septic decommissioning, etc.  Closing Costs:  Aside from physically preparing your home for sale, a top consideration for most sellers is….. an age old question, what will it cost me to sell my home? Aside from realtor fees and marketing expenses, sellers have closing costs too. In Oregon, expect to pay 2 - 3% of the sale price for various closing costs including: Seller concessions or discounts - negotiated as part of the sale Home transition costs - property taxes, or if relevant, HOA fees Outstanding balances: The costs are variable according to the situation and could include a mortgage, home equity loans, HELOCS, accrued interest, prepayment penalty.  Administration & Taxes fees: Attorney’s fees, title search, title insurance, transfer tax (if applicable), escrow fees Outstanding expenses: Utility bills, HOA estoppel fee, municipal lien search Now that all of these elements have been considered, it’s time to list the home.  Real Estate sellers have control over price, condition and access. Sellers don’t control market conditions!  Price: Price will be dictated by data, the condtion of the home, and market conditions. It is not dictated by what the neighbors home sold for, what you paid for it or need to make on it,  or what the seller believes it’s worth.  Condition: The condition of the home is up to the seller. If repairs need to be made or maintenance is in order when it’s listed, expect that buyers will approach these when negotiating. Remember, it’s not just the buyer who may have issues with the condition or price point of the home. Lenders play into this part of the sale as well. If the house isn’t up to snuff and can’t be financed, the buyer pool will shrink and it may take longer to sell the home.  Access: Consider that potential buyers will need good access to tour the home in order to make a decision. Make the home accessible by preparing to show it. Vacant homes are easier to show and allow the buyer to see the home for what it is without the seller’s personal belongings providing visual noise. Keep the home secure. It’s surprising how often vacant homes for sale are broken into or occupied by squatters. This is a huge turn off for a buyer!  If the home is occupied, keep it clean and organized so it’s a pleasant experience for agents and buyers touring the home. Make appropriate arrangements for pets during showings. Remove any trash or junk from the property that could be dangerous or attract unwanted pests.  Marketing: Work with your agent to come up with a comprehensive marketing plan. Every marketing plan is different, but your agent will likely have systems in place to facilitate the sale of the home to get it sold for a top dollar amount in a timely fashion. They are your trusted professionals, so listen to their suggestions and take them seriously!  In conclusion, I hope this information helps on your journey to selling your home. If you’d like a personalized evaluation of your home value, or to explore your options when considering a sale, I’m here to help!  Sam Densmore/Realtor/Inhabit Real Estate/ 08/30/2024 All Rights Reserved

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